Mutual fund tweaks you should make as stock market gains. Explained in 5 ways

Mutual fund tweaks you should make as stock market gains. Explained in 5 ways:

Mutual fund investments are subject to stock market risk. Hence, a mutual fund investor is required to remain vigilant about the stock market trends and tweak once portfolio on the basis of those market bias.

Investors should pay attention to market biases and adjust their portfolios accordingly. The idea is that if the stock market is expected to offer only modest returns in the short term, it may be beneficial to rebalance the portfolio and switch from short-term equity funds to ultra short-term and debt funds. According to tax and investment experts, this rebalancing could potentially result in higher returns of around 0.50 to 1 percent.

Rebalancing a mutual fund portfolio involves adjusting the allocation of assets to maintain the desired risk and return profile. It typically involves selling some investments that have performed well and buying others that may be expected to perform better in the future. The purpose of rebalancing is to bring the portfolio back in line with the investor’s desired asset allocation.

Switching from short-term equity funds to ultra short-term and debt funds can be seen as a strategy to reduce exposure to stock market risk and potentially benefit from more stable returns offered by fixed income securities. However, it’s important to note that the performance of different types of funds can vary, and past performance is not a guarantee of future results. It’s advisable to consult with a financial advisor or conduct thorough research before making any investment decisions.

Additionally, it’s worth mentioning that the statement refers to the opinions of tax and investment experts, and their views may not always align with the market’s actual performance. The stock market can be influenced by various factors, including economic conditions, geopolitical events, and investor sentiment, which can impact returns. Therefore, it’s crucial to consider multiple sources of information and evaluate the market conditions before making investment choices.

How to rebalance your mutual funds stock portfolio

Rebalancing your mutual fund stock portfolio is a crucial step in optimizing your investments, particularly in the context of short-term investing during a stock market rally. Vinit Khandare, CEO & Founder at MyFundBazaar, emphasized the anticipated modest returns of equity mutual funds in the near term, despite the hawkish stance of central banks globally and the rise in interest rates. In light of this, Khandare highlighted the importance of rebalancing one’s mutual fund portfolio. By shifting investments from short-term equity funds to ultra-short-term and debt mutual funds, investors have the potential to achieve an increase in returns ranging from 0.50% to 1%. This adjustment in allocation aims to capitalize on the stability and potential yield offered by these alternative fund types.

On advice to new investors during bull trend in stock market, Vinit Khandare of MyFundBazaar said, “Investing in stocks for a short period of time is not recommended. New investors are encouraged to look at debt mutual funds or liquid and bond funds instead of equity mutual funds since they are projected to provide better returns than equity funds because equities mutual funds are for medium to long term time horizons.”

Batting in favour of mutual funds portfolio rebalancing amid soaring stock market, Mohit Gang, CEO at Moneyfront — a subsidiary of Niyogin Fintech Ltd — recommended five major steps to a mutual fund investor. Here we list out those five steps to enhance probability of higher returns from mutual funds investment:

1] Revisit asset allocation: A mutual fund investors should revisit its asset allocation and strongly adhere to it. If in the recent run-up, equity portfolio has soared beyond the comfortable zone – this might be the right time to rebalance and trim allocations.

2] Investment strategy when stock market is rising: If someone is looking to deploy more funds in these markets, one should consider staggering it out over next 6-12 months via SIP or STP route. This will help ride out any volatility in foreseeable future.

3] Mutual fund categories to look at: For additional allocations at these levels, one should consider more conservative categories like Balanced advantage or dynamic asset allocation funds. These tend to adjust debt-equity component as per market fundamentals.

4] Remain vigilant about profit booking trigger: For someone considering pure equity allocation – one can restrict to Large cap or Flexi cap funds which are less volatile and would show more resilience if markets were to correct.

5] Avoid short term calls: Amid soaring stock market, a mutual funds investor should stay away from taking very short term or aggressive thematic equity calls in such a scenario. Any correction can put one back heavily. If at all, any fresh allocations have to be done with a view of minimum 5 year.